Navigating the World of Free Trade Zones (FTZ)

As companies increasingly source products on a global scale, those involved in importing goods are perpetually seeking methods to enhance the efficiency of their supply chains.

Q: What is an FTZ?

A: An FTZ (Free Trade Zone) is a specially designated area under the supervision of U.S. Customs and Border Protection. Within these zones, even though goods have physically entered the United States, they are legally regarded as being situated on foreign territory. FTZs grant companies the advantage of postponing the payment of duties and taxes on these goods until they are either sold within the United States or taken out of the FTZ for export.

Q: When does it make sense to move product through an FTZ?

A: Several situations arise where it's highly advantageous for businesses to consider partnering with a 3PL (Third-Party Logistics) provider that operates within an FTZ (Free Trade Zone).

• High import volume on high-duty product. Businesses that import substantial quantities of high-duty goods, with multiple containers arriving weekly, can achieve substantial cost savings, particularly in Merchandise Processing Fees (MPFs), by leveraging their 3PL's FTZ capabilities. Within an FTZ setup, MPFs are assessed on a weekly basis, rather than per individual container, resulting in a notable reduction in processing fees.

• Non-consumed goods. Goods that remain in an FTZ without being consumed can be repatriated to their country of origin without incurring any duty payments by the company. This is possible because these goods never formally entered U.S. commerce.

• Zone-to-zone transfers. Companies engaged in the transfer of goods between FTZs located in the United States, Canada, and Mexico benefit from a duty-free movement of goods within these zones. This favorable arrangement persists until the goods are either consumed within the respective country or re-exported to another destination.

• When moving temperature-controlled product. The risk associated with temperature-sensitive products being held at a non-temperature controlled port is eliminated when using an FTZ. This is because the products do not have to wait for customs clearance, ensuring their integrity is maintained.

• New product launch. When products are awaiting FDA approval or have an upcoming product launch date, relocating them to an FTZ offers companies the advantage of positioning their products in closer proximity to the customer base. This strategic move enhances the speed at which products can reach the market, facilitating a faster time-to-market approach.

Q: What are the benefits?

A: Collaborating with a 3PL (Third-Party Logistics) provider that operates within an FTZ presents customers with an opportunity to achieve significant cost and time savings. Economically, companies utilizing an FTZ benefit from reduced Merchandise Processing Fees (MPFs), duty and tax deferment, and the advantage of leveraging an established FTZ infrastructure. This approach minimizes the expenses associated with establishing their own FTZ and the need for additional personnel to oversee FTZ management and related filings.

From a time-saving standpoint, companies that opt for a 3PL with FTZ capabilities can capitalize on quicker market entry and mitigate risks associated with temperature-sensitive products. Particularly in the context of new product launches, this can make a pivotal difference, potentially elevating a company from a second-place position to a first-place position in the market.